Specifically, they seem to contradict the stipulations instituted by the CARD Act which make it illegal for credit card companies to change the interest rate on a consumer account unless the account holder becomes at least 60 days late on his or her payments. This law was implemented to prevent issuers from arbitrarily increasing the cost of their customers’ debt, and that’s exactly what Bank of America is about to do. They’re simply calling the extra costs membership fees instead of interest rates.
You see, membership fees and interest rates are both finance charges, and they both have the same practical effect, meaning that assessing fees on accounts with existing balances is tantamount to applying increased interest rates. For example, tell me what the difference is between a credit card company turning your 0% APR credit card into a 5.9% APR credit card and the company instituting a $10 monthly fee? The answer: Not much. Both changes increase the finance charges on your existing balance; which one is worse for your wallet depends on your exact credit card balance.
It’s important for banks to realize that it was their propensity toward baiting consumers with certain pricing only to later switch to higher terms, even when consumers did nothing wrong, that brought about the CARD Act in the first place. Bank of America’s proposed fees continue in that tradition, and if BofA and the other major banks prove themselves incapable of self-regulation, not only will these membership fee changes be capped, but there might also be a more comprehensive regulatory backlash as well.
As it turns out, this isn’t the first time the company has tried this stunt either. Shortly before the CARD Act was enacted in February 2010, BofA decided that it would begin “testing” membership fees for existing account holders even though it had just announced that it would indefinitely cease account terms re-pricing. The company’s rationale to the subsequent consumer backlash was that it had promised to stop interest rate re-pricing, which according to them, was completely independent from membership fees. This insulted consumers’ intelligence then, and it’s doing the same thing now. There is no practical difference between interest rates and membership fees—both are included under the finance charge umbrella.
Ultimately, Bank of America and the rest of the nation’s largest banks must learn from their mistakes, not repeat them. Bank of America should focus on developing more sophisticated underwriting techniques and running a more efficient credit card operation rather than implementing stop-gap measures to help resuscitate a credit card division that has performed poorly relative to its peers.